KUALA LUMPUR (April 8): The government has approved a RM1.5 billion soft loan to Proton Holdings Bhd to pay vendors for components supplied.

Announcing this today, International Trade and Industry Minister Datuk Seri Mustapa Mohamed said the loan, however, comes with conditions attached to initiate a restructuring process for the loss-making national car maker.

"Among the conditions is that Proton needs to convince the government of its new business model so that its business is progressive and competitive," he said in a statement.

Proton must also come up with a "turnaround plan" for the company and a strategic plan to widen its local and international markets, he said.

The car maker is also required to sign up a new "leading foreign partner" that will assist the company in research and development to ensure it is progressive and competitive internationally.

Proton inked a memorandum of understanding and licensing agreement with Japanese carmaker Suzuki Motor Corp in June last year.

Mustapa said a task force headed by Pemandu chief executive Datuk Seri Idris Jala will be set up to ensure the "transformation programme" is effective.

The task force will encompass three representatives each from the private sector and public sector.

Representatives from the government would be from the Finance Ministry, the International Trade and Industry Ministry and the Economic Planning Unit.

He said representatives from the private sector will be identified as soon as possible.

Mustapa said the task force will also look at Proton's previous business model and identify measures to overcome identified weaknesses.

He said the government's decision today also rested on the fact that about 60,000 employees depend directly on Proton's future.

"The government realises that the automotive industry is a strategic industry," he said.

"Proton has 12,000 direct employees and about 50,000 employees who work under vendors that depend on Proton," he added.

Today's announcement comes on the heels of Mustapa's comments that Proton's current business model is not sustainable, and that the government has been seriously deliberating Proton's request for assistance for grants and soft loans at a time when national revenue has been dented by low crude oil prices.

Mustapa had also said that since its establishment in 1983, the government has provided grants, various forms of assistance as well as tax breaks to Proton to the tune of about RM13.9 billion in total.

DRB-Hicom Bhd, which owns Proton, has seen its profit margins sliding since financial year 2013.

For the third quarter ended Dec 31, 2015 (3QFY16), DRB-Hicom posted a loss of RM185 million against a profit of RM9.47 million in the previous corresponding quarter, due to poor performance of its automotive sector, of which Proton is the mainstay even though it distributes other models including Honda.

Revenue declined 5.38% to RM3.34 billion in 3QFY16 compared to RM3.53 billion in 3QFY15.

For the first nine months of the financial year 2016 (9MFY16), the company slipped into the red, recording a net loss of RM201.14 million against a profit of RM210.4 million in the previous corresponding quarter.

Revenue for 9MFY16 declined 8.97% to RM9.54 billion from RM10.48 billion.